Budget negotiations are wrapping up this week in Delaware, and unlike most states, Delaware has taken an approach to remedying their $151 million budget shortfall that utilizes both spending cuts and tax increases. While many states seem content with purely slashing spending to balance the budget, (see this week's Digest articles on New Jersey, Rhode Island, and Florida) Delaware has chosen to scrape together some extra revenues to help save some of its public services.
Admittedly, the means the state has chosen to go about doing this aren't especially exciting. On the revenue side are minor increases in the gross-receipts tax, the state's share of slot machine revenues, the alcohol tax, registration fees for limited liability partnerships, and the possibility of a tax on medical providers. Clearly, the only overarching theme of these tax policy changes is that they are the only options on which Delaware budget negotiators managed to agree.
Noticeably missing from this hodge-podge of ideas is a bill filed in the Senate seeking to increase the state's top income tax rate from 5.95% to 7.95%. This change wouldn't have provided a tremendous amount of revenue, but the revenue it did raise would have been collected from those more fortunate Delawareans least vulnerable to the hardships caused by the recent economic slowdown.
The legislature should be credited for not falling victim to the anti-tax sentiment that has paralyzed many state budget-makers in the past months, but next time a budget shortfall surfaces, progressive income tax hikes should be considered as a more equitable and more sustainable way of filling the hole.